Today I’ll be looking at the investment appeal of multinational telecommunications giant BT Group and postal services company Royal Mail. Should income seekers be tempted by the lure of rising dividend payouts from these FTSE 100 giants?
BT off the hook
Telecoms giant BT Group (LSE: BT-A) may be best known as the UK’s leading fixed-line telecoms provider, but the acquisition of mobile network EE means the company is now able to offer the quad-play of fixed-line, mobile, broadband and television services as a package to its customers. The deal should help the company take advantage of cross-selling opportunities as well as achieve substantial cost synergies, thereby putting itself in a very strong position within the UK market.
In July investors breathed a sigh of relief after the telecoms regulator Ofcom said BT’s Openreach division should be a distinct company within the group, rather than forcing it to entirely spin-off its management of the nation’s internet infrastructure. This was seen by many as a let-off for the company after MPs had earlier threatened to push for a full separation of the Openreach business following accusations that BT was exploiting its dominant market position.
BT’s shares currently look good value trading on a modest price-to-earnings ratio of 12 for the year to the end of March 2018, and supporting a solid dividend yield of 4%. In my opinion BT continues to provide attractions for income seekers looking for a reliable FTSE 100 blue chip stock with a sustainable progressive dividend.
The rise in internet shopping
The UK’s leading postal and delivery services provider Royal Mail (LSE: RMG) suffered a dip in both overall revenue and profits for its full year to March as a result of substantial restructuring costs. Pre-tax profits fell to £267m from £400m a year earlier, with a slight dip in revenues from £9.33bn to £9.25bn. The decline in the letters part of the business in recent years has somewhat been offset by the boom in parcels as a result of the rise in internet shopping.
The company has warned that growth will be slow in the year ahead, and City analysts seem to agree, estimating a rise in underlying earnings of just 1% for the current financial year to the end of March 2017. Next year should fare a little better, with market consensus suggesting an improved growth rate of 4% for fiscal 2018 on higher revenues of £9.58bn.
Royal Mail has continued to be a favourite for retail investors since its IPO in October 2013, and the company has rewarded shareholders with generous dividend payouts every year. Broker estimates predict a total dividend payout of 22.87p per share for this year, rising to 23.98p for the year to March 2018, equating to healthy yields of 4.4% and 4.6%, respectively. Attractions remain for income seekers looking for a relatively safe dividend with a good track record of growth.